

For over a half a year every overbought reading has led to a large decline. This does not necessarily need to be the case. Overbought readings can be worked off by going sideways or correcting by a small amount.
In the sentiment arena we have gotten some troubling numbers overnight. The AAII bears dropped to the lowest level in years. Additionally, Rydex traders are at their largest net long exposure since this rally started. This adds to recent data that shows the Investors Intelligence bulls at 50%, which is on the high side but not extreme. Additionally, the put/call ratios are overbought.
Anecdotally, I am not seeing that much bullishness and believe large investors are positioned conservatively. I don't believe this overbought reading will lead to a large decline. But I will heed the numbers and try to refrain from adding back trading longs until we are closer to having worked off this overbought reading. I am keeping my medium sized core net long position in tact.
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